Boral Gypsum, Inc. v. Leathers

BORAL GYPSUM, INC., Arkansas Chemicals, Inc.,
Cross Oil & Refining Co., Inc., Green Bay
Packaging, Inc., International Paper Co.,
Lion Oil Company, Quincy Soybean Company of
Arkansas, Acme Brick Company, Aluminum
Company of America, and Gaylord Container
Corporation v. Timothy LEATHERS, in His
Official Capacity as Commissioner of
Revenues, Arkansas Department of finance and
Administration

96-282                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
                 Opinion delivered July 8, 1996


1.   Judgment -- review of a summary judgment -- factors
     considered. -- The standard for review of a summary judgment
     is whether the evidentiary items presented by the moving party
     in support of the motion left a question of material fact
     unanswered and, if not, whether the moving party is entitled
     to judgment as a matter of law; the court views all proof in
     the light most favorable to the party opposing the motion,
     resolving all doubts and inferences against the moving party;
     when the facts are undisputed, the court simply determines
     whether the movant was entitled to judgment as a matter of
     law.  

2.   Taxation -- transportation costs -- when they constitute part
     of gross receipts of sale subject to gross-receipts tax. -- 
     Transportation costs paid to an independent carrier other than
     the seller of the goods do not constitute part of the gross
     receipts of the sale; when the transportation costs are paid
     to the seller of the goods, however, they do constitute part
     of the gross receipts of the sale and are thus subject to
     gross-receipts tax; since the non-taxable service was included
     as part of the total consideration received, the charge for
     services constitutes part of the gross proceeds, and the
     entire proceeds are subject to taxation.

3.   Taxation -- partial cash payments of tariff not subject to use
     tax -- in-kind payment of compressor fuel not taxable. -- The
     trial court erred in ruling that the compensating or use tax
     statute supported taxing appellant for compressor fuel where
     appellee admitted that appellant's partial cash payments of
     the tariff to the transporter of the gas were not subject to
     use tax, and so likewise the in-kind payment of compressor
     fuel should not have been taxed; if the transporter of the gas
     had charged appellant for the compressor fuel, then the
     payment to the transporter would not be taxable under the
     gross-receipts tax as the payment would constitute a
     transportation charge billed by a transporter other than the
     seller; if appellant had paid the transporter cash rather than
     in-kind with compressor fuel, the cash payment would not be
     subject to gross-receipts tax, and the in-kind payment would
     likewise not be taxable.


4.   Taxation -- transaction not taxable under use tax -- trial
     court erred in granting summary judgment to appellee. -- The
     transfer of ownership as well as the right to use the
     compressor fuel occurred in Oklahoma; Ark. Code Ann.  26-53-
     106(a) levies the use tax on uses of tangible personal
     property in this state, and appellant's payment in-kind of
     compressor fuel was a direct payment to the transporter of the
     gas as compensation for the cost of transporting appellant's
     gas from Oklahoma to its plant in Nashville, regardless of the
     fact that appellant actually purchased the compressor fuel
     from a third-party supplier; thus, even if the transaction
     occurred in Arkansas, it would not be taxable under the gross-
     receipts tax; if a cash payment of transportation costs is not
     taxable, an in-kind payment should likewise not be taxable;
     the trial court s H. Druff, Stephen N. Joiner and Deanna J.
     Weisse, for appellants.
     Michael J. Wehrle, for appellee.

     Donald L. Corbin, Justice. 

  ephen N. Joiner and Deanna J. Weisse, for appellants.
     Michael J. Wehrle, for appellee.

     Donald L. Corbin, Justice. 

  Associate Justice Donald L.
Corbin, 7-8-96   *ADVREP*SC5*





BORAL GYPSUM, INC., ARKANSAS
CHEMICALS, INC., CROSS OIL &
REFINING CO., INC., GREEN BAY
PACKAGING, INC., INTERNATIONAL
PAPER COMPANY, LION OIL
COMPANY, QUINCY SOYBEAN COMPANY
OF ARKANSAS, ACME BRICK
COMPANY, ALUMINUM COMPANY OF
AMERICA, and GAYLORD CONTAINER
CORPORATION,
                    APPELLANTS,

V.

TIMOTHY LEATHERS, in his
Official Capacity as
Commissioner of Revenues,
ARKANSAS DEPARTMENT OF FINANCE
AND ADMINISTRATION,           
                    APPELLEE,


96-282




APPEAL FROM PULASKI COUNTY
CHANCERY COURT, SECOND
DIVISION, NO. E-94-2629,
HON. COLLINS KILGORE,
CHANCELLOR,













REVERSED AND REMANDED.


     Appellant, Boral Gypsum, Incorporated, appeals the judgment of
the Pulaski County Chancery Court granting summary judgment to
appellee, Timothy Leathers, in his official capacity as
Commissioner of Revenues with the Arkansas Department of Finance
and Administration (DF&A).  The chancellor's order ruled that
appellant's payment in-kind of compressor fuel diverted from a
natural gas pipeline to NorAm Gas Transmission Company (NGT)
(formerly known as Arkla Energy Resources Company), the transporter
of the gas and owner of the pipeline, is subject to Arkansas use
tax.  Appellant raises two points for reversal of that order and
asserts jurisdiction of the appeal lies in this court because
statutory interpretation is required.  We find merit to the first
point and reverse and remand.
     The present case is a consolidation of four cases below
involving a total of ten taxpayers-plaintiffs-appellants:  Boral
Gypsum, Inc.; Arkansas Chemicals, Inc.; Cross Oil & Refining Co.,
Inc.; Green Bay Packaging, Inc.; International Paper Co.; Lion Oil
Co.; Quincy Soybean Company of Arkansas; Acme Brick Co.; Aluminum
Company of America; and Gaylord Container Corporation.  Pulaski
County Chancery Court Cases E-94-5607, E-94-7096, and E-95-0657
were consolidated into appellant Boral Gypsum's case, E-94-2629. 
The operative facts are essentially identical in each case, save
the particular amounts of tax.  Therefore, the chancellor focused
on the facts in appellant Boral Gypsum's case when drafting the
order appealed.  All ten appellants filed a joint notice of appeal,
followed by a single brief on appeal.  The brief follows the
chancellor's approach in focusing on the facts of appellant Boral
Gypsum's case.  We do likewise in our opinion, using the word
"appellant" to refer specifically to Boral Gypsum, but applying
generally to the remaining nine appellants.
     Appellant uses natural gas to manufacture sheetrock at its
plant in Nashville, Arkansas.  The gas is supplied by companies
located outside Arkansas and transported to appellant's plant by
NGT through NGT's interstate pipeline.  In order to maintain the
correct pressure in the pipeline, NGT diverts gas traveling through
the pipeline to compressor stations, where the gas passes through
a regulator to reduce its pressure and then is immediately burned. 
This diverted gas is known as "compressor fuel" and is the subject
of this appeal.
     The parties stipulated that when appellant purchases gas from
out-of-state suppliers such as Continental Natural Gas Company in
Oklahoma, the supplier's single invoice itemizes separately the
amounts of gas and compressor fuel purchased.  Thus, appellant
purchases the compressor fuel along with the gas from a supplier,
and the gas and compressor fuel then begin transportation to
appellant's plant through NGT's pipeline.  During transport, NGT
diverts and uses the gas known as compressor fuel at its compressor
stations, some of which are located in Arkansas.  Consequently,
when appellant receives the gas at its plant, it actually receives
a lesser amount of gas than the total amount it purchased from the
supplier.  The compressor fuel, although purchased from a third-
party supplier, is appellant's payment in-kind to NGT pursuant to
a tariff authorized by the Federal Energy Regulatory Commission
(FERC).  According to the terms of the FERC tariff, NGT receives
the compressor fuel from appellant at the point of receipt at its
pipeline.
     In 1993, appellee issued assessments for use tax due on
appellant's payment in-kind of compressor fuel for the previous
three years, January 1990 through December 1992.  Appellant
protested the assessment and requested an administrative hearing. 
The administrative law judge upheld the assessment, and appellee
refused appellant's request to revise the assessment.  Appellant
paid the assessment under protest and filed this suit for a refund
pursuant to Ark. Code Ann.  26-18-406 (Repl. 1992).  The
chancellor heard the case on stipulated facts and cross motions for
summary judgment, ultimately granting summary judgment to appellee. 
This appeal followed.
     Our standard for review of a summary judgment is whether the
evidentiary items presented by the moving party in support of the
motion left a question of material fact unanswered and, if not,
whether the moving party is entitled to judgment as a matter of
law.  Baker v. Milam, 321 Ark. 234, 900 S.W.2d 209 (1995).  We view
all proof in the light most favorable to the party opposing the
motion, resolving all doubts and inferences against the moving
party.  Id.  When the facts are undisputed, we simply determine
whether the movant was entitled to judgment as a matter of law. 
Equity Fire & Casualty Co. v. Needham, 323 Ark. 22, 912 S.W.2d 926
(1996).
     Appellant's first argument for reversal is that the trial
court erred in ruling that the compensating or use tax statute,
Ark. Code Ann.  26-53-101 to -138 (1987 and Supp. 1995), supports
taxing appellant for compressor fuel.  Appellant contends that it
should not be subject to use tax on compressor fuel that is
exclusively owned and used by NGT to transport appellant's natural
gas.
     The stipulated facts are that appellant purchased natural gas
from out-of-state suppliers who billed appellant in a single
invoice for all natural gas purchased, including the compressor
fuel.  Attached to the stipulations was an invoice from Continental
Natural Gas Company in Oklahoma to appellant itemizing separately
the natural gas and the compressor fuel.  According to the specific
terms of the FERC tariff, NGT received the compressor fuel from
Boral at the point where it was delivered to NGT's pipeline.
     Appellant contends that, because the compressor fuel is
delivered to NGT outside the State of Arkansas before
transportation ever begins and because NGT is the owner of the
compressor fuel and the party who burns the fuel at its compressor
stations within Arkansas, appellant is not the owner of the
compressor fuel and does not use the compressor fuel in Arkansas
and should, therefore, not be subject to use tax.  This argument is
consistent with the terms of the FERC tariff, whereby NGT takes
receipt of the compressor fuel from appellant at NGT's pipeline.
       Appellee responds that it is not NGT's use of the compressor
fuel that it seeks to tax, rather it seeks to tax appellant's use
of the compressor fuel as payment to NGT for transporting
appellant's gas to its plant in Nashville.  Appellee maintains
that, under section 26-53-102(6)(A), there is no requirement for
the imposition of use tax that title or possession of property be
transferred; rather, all that is required is a transfer of the
right to use the property.  Appellee also relies on American
Television Co., Inc. v. Hervey, 253 Ark. 1010, 490 S.W.2d 796
(1973), to support this contention.
     Appellant strengthens its argument with the claim that because
appellee admitted that appellant's partial cash payments of the
tariff to NGT were not subject to use tax, likewise the in-kind
payment of compressor fuel should not be taxed.  We agree with this
contention.  Appellee did indeed state below that, if NGT had
charged appellant for the compressor fuel, then the payment to NGT
would not be taxable under the gross-receipts tax as the payment
would constitute a transportation charge billed by a transporter
other than the seller.  This is a correct statement of the law
according to DF&A's Gross Receipts Tax Regulation GR-18.A, which
provides that transportation costs paid to an independent carrier
other than the seller of the goods do not constitute part of the
gross receipts of the sale.  When the transportation costs are paid
to the seller of the goods, however, they do constitute part of the
gross receipts of the sale and are thus subject to gross-receipts
tax.  Pledger v. Featherlite Precast Corp., 308 Ark. 124, 823 S.W.2d 852, cert. denied, 113 S. Ct. 82 (1992).  We have recently
reiterated this general concept in Weiss v. Best Enterprises, Inc.,
323 Ark. 712, 718, 917 S.W.2d 543, 546 (1996):  "However, since the
non-taxable service was included as part of the total consideration
received..., the charge for services constitutes part of the gross
proceeds, and the entire proceeds are subject to taxation."  Thus,
we agree that if appellant had paid NGT cash rather than in-kind
with compressor fuel, the cash payment would not be subject to
gross-receipts tax, and the in-kind payment would likewise not be
taxable.
     While recognizing that imposition of the use tax does not
require a transfer of ownership or possession, see Hervey, 253 Ark.
1010, 490 S.W.2d 796, we are nevertheless unwilling to extend
application of the use tax to the facts of this case for two
reasons.  First, the transfer of ownership as well as the right to
use the compressor fuel occurred in Oklahoma, not in this state. 
Section 26-53-106(a) levies the use tax on uses of tangible
personal property in this state.  Second, even assuming arguendo
that the transfer occurred in Arkansas, appellant's payment in-kind
of compressor fuel was a direct payment to NGT as compensation for
the cost of transporting appellant's gas from Oklahoma to its plant
in Nashville, regardless of the fact that appellant actually
purchased the compressor fuel from a third-party supplier.  Thus,
even if the transaction occurred in Arkansas, it would not be
taxable under the gross-receipts tax.  This is a significant
assurance that there is not an avoidance of tax on these facts.  If
a cash payment of transportation costs is not taxable, an in-kind
payment should likewise not be taxable.  That appellant purchased
the compressor fuel from a third-party supplier and then paid the
compressor fuel in-kind to NGT does not negate the fact that it was
a direct payment of transportation costs to a transporter other
than the seller.
     If we were to follow appellee's argument that appellant's use
of the compressor fuel (as a form of making payment) was taxable,
we would be expanding the reach of the use tax beyond its scope and
perhaps indefinitely.  We are not willing to make such a broad
extension of the scope of the tax; such an extension is better left
to the General Assembly.  Accordingly, we conclude the trial court
erred in granting summary judgment to appellee, and we need not
address appellant's remaining sub-points in support of its claim
that it is not subject to use tax.  
     Appellant's second argument for reversal is that the trial
court erred in holding that it was subject to the gross-receipts
tax for the compressor fuel at issue here.  Appellant refers to
certain language in the trial court's order as confusing because it
is an analysis of gross-receipts tax law.  Because appellee never
assessed a gross-receipts tax against appellant, we need not
address this argument.
     The order granting summary judgment is reversed, and the case
is remanded to the trial court with directions to enter summary
judgment for appellant.
     DUDLEY, J., not participating.